By Tom Strangstalien, Insurance Advisor with WisMed Assure
Most people know someone whose estate was wiped out by the exorbitant cost of long-term care. Unfortunately, if a family’s long-term care plan is to do nothing to address the potential need for care, they may find themselves in crisis. When developing financial goals and plans, don’t overlook this piece of the puzzle; it can potentially devastate a life of hard work. There are several innovative solutions to protect your finances.
According to Genworth’s Cost of Care Survey, 69% of people turning age 65 will need some form of long-term care during their lifetime. This includes nursing home care, assisted living, home health care or a combination of those. In Wisconsin, as illustrated by the Administration for Community Living, the cost of semi-private care in a nursing home is $8,334 per month and private care is $9,346 per month. That is potentially $100,000 per year!
The average length of stay for men in a facility is 2.2 years, while women average 3.7 years. Twenty percent of individuals age 65 or older stay longer than five years. At the least, this can severely erode a family’s estate and, at worst, it can completely blow it up.
Times have changed... for the better!
In the past, the only solutions to protect one’s estate from this life event was to self–insure, purchase long-term care (LTC) insurance protection, or to roll the dice and gamble. It can be very intelligent to purchase long-term care insurance, particularly when younger, to bomb-proof future financial well-being. The argument contrary to this type of planning has always been that one could end up spending the premium dollars over one's lifetime and never need the policy protection (use it or lose it). Today, there are several additional options available, negating the risk of spending substantial dollars and never using them.
Exponentially gaining in popularity are “Hybrid LTC Policies”; combining the benefits of a life insurance policy and long-term care protection. Simply stated, some or all of the life insurance benefit can be paid out for qualifying long-term care costs. If the policy is not used, generally speaking, the life insurance value is paid out as a tax-free benefit to the beneficiaries upon death. Regardless, this planning offers protection to the estate, and keeps the dollars in the estate in a tax efficient manner.
An alternative to the traditional long-term care insurance policy is “Asset-Based LTC.” This planning involves setting dollars aside in an annuity contract. The contract provides two “buckets” of money; one on deposit accumulating growth, and the other providing protection for long-term care. Only one bucket of money can be used. Should one desire or need to use the assets for income, the funds will be available per the structure of the contract. However, if a form of long-term care is needed, that bucket will provide a respectfully larger pool of funds that can be tapped. For money set aside as the “last” money to be used in life, this can offer an attractive way to leverage one's assets.
Another strategy is purchasing a fixed or indexed annuity contract with an optional LTC rider. Thanks to the media, annuities have been incurring a bad reputation. However, many of the cases involving annuities are simply a case of someone using the wrong tool in the proverbial tool box. Each financial tool has its purpose and its place. By using an annuity with an LTC rider to provide a stream of income, the policyholder will receive consistent guaranteed payments over a period of time. Should they qualify for long-term care, these payments will be increased; many times doubled to cover the increased costs to the family budget. In addition, this type of planning involves minimal medical underwriting.
In my opinion as an advisor with many years of experience, your long-term care plan should never be not to plan. Even if you do nothing and roll the dice, you have the comfort that you did indeed explore the options available to address the risk. As your Financial Partner for Life, WisMed Assure is here to help you navigate through all of the protection options available to you. The WisMed Assure team here to help you make the very best choices to bomb-proof your financial shelter. You will sleep at night knowing you have a fortified plan, and will not fall victim to “crisis management”.
Contact Tom Strangstalien, insurance advisor for WisMed Assure, the Wisconsin Medical Society’s insurance agency, at 608.442.3730 or firstname.lastname@example.org.
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